Just in time for Halloween… the Inflation Zombie!

James Bullard, President and CEO of the St. Louis Federal Reserve Bank, provides insight into Fed thinking in his message “Does Low Unemployment Signal a Meaningful Rise in Inflation?” In this message, he provides arguments against the case for inflation in that, although low unemployment typically implies higher inflation due to the Phillips curve, there are calculations that show a much “flatter” relationship between unemployment and inflation than in the past. In his conclusion, Bullard states “… there seems to be no strong case for being preemptive with respect to inflation simply because the unemployment rate is low.”

The case I will be making for inflation is based on observations of current economic conditions, albeit I must temper my conclusions with the admission that my observations are based totally on local conditions (I live in the Los Angeles metropolitan area). My first observation is with respect to housing. Rents are up throughout the area, and most local real estate markets are selling at prices much higher than the 2006 peak.

My next observation is food costs. Whether you are eating out at a restaurant, buying fast food, or making dinner at home, it is all costing more. Has anyone noticed the price of avocados lately? I’m not even that big of a fan (with the exception of a good guacamole dip), and I can readily see that prices have doubled or more in recent years.

I do realize that energy costs, in the case of the gasoline I put in my car, is not quite as expensive as it was a few years ago, but I also know that my electricity and natural gas bill rates only go in one direction (up!). Also, technology costs have come down, with respect to how much you pay for computing power (more capability and memory is being put into each system), but you still wind up paying $1000 for a new laptop.

But how does that make up for the everyday costs of living? It doesn’t. In other blogs I have related inflation to zombies, because you think it is dead and behind us. However, if you look over your shoulder you will see – he is right behind you and gaining ground….

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